Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other monthly debts.
About your qualifying ratio
Typically, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, etcetera.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, please use this Mortgage Pre-Qualifying Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to help you determine how much you can afford.
Metro Mortgage can answer questions about these ratios and many others. Give us a call: 866-300-1550.